COMMERCIALISATION: To do or Not to Do?

COMMERCIALISATION: To do or Not to Do?

When making a presentation at the start of the WFDFI CEO Forum, Ms. Loyiso Ndlovu: Executive Manager-Strategy, Policy and Marketing at the Land and Agricultural Development Bank of South Africa told the story of a bank that was established in 1987 in South Africa, charged with providing microfinance to the rural and impoverished.

She narrated how the bank enabled rural women to build better lives for themselves and their families by using group based lending techniques as a proactive mechanism for alternative forms of security and collateral. The bank was clear in its mandate: Its role was to make money, support rural economies and empower women.

However, things changes as the bank grew bigger. Suddenly there were calls for the bank to raise more capital through an initial public offering (IPO). After the IPO and listing the bank began to adopt institutionalised approaches and moved further away from its traditional constituents. Shareholders demanded aggressive growth targets and called for the bank to start taking deposits. Ms. Ndlovu’s narrative brings to the fore the topic of commercialisation of DFIs, which has been hotly debated over the years. Commercialisation raises fundamental questions about whether it’s possible for the contrasting social and financial missions of DFIs to coexist. Proponents of commercialization believe these two functions can coexist and become mutually reinforcing. They have also argued that DFIs must commercialize so as to become sustainable. The solution, they say, lies in attracting private capital and establishing links with commercial markets for long term survival.

However, those who are against commercialization have raised concerns about a shift in policy, which will result in DFIs abandoning their social mission to foster development and going up-market in search of stellar profits. Therefore, they say, commercialization will hurt DFIs core clients as it will make development finance expensive and inaccessible. The DFIs concerns for impactful development will be at loggerheads with the commercial concern for financial returns.

Ms. Ndlovu believes DFIs have a responsibility to reach beyond success and aim for significance.

“It must be in us to want to do the right things, not the easy things. Our anchor must be the people that we serve,” she said.

Thabo Thamane, Chief Executive Officer (CEO) of the Citizen Entrepreneurial Development Agency (CEDA) says his agency has all the necessary political support to enable it to eventually reach levels where it can commercialise. He however believes that CEDA must first seek to be self sustainable before it guns for commercialisation.

“We have set ourselves a target to have achieved sustainability within a certain period of time. We have been slowly weaning ourselves from dependency on government subvention because we believe such funding can be channelled to other competing needs,” he said.

Mr. Patrick Dlamini, Chairman of the Association of African Development Finance Institutions (AADFI) believes the continent is far from having privately owned DFIs because the needs of the people demand a different approach.

“The Development Bank of South Africa, which I lead is 100% owned by the sovereign. We have played our role as catalysts for development very well over the years and the fact that we are owned by government works in our favour,” he said.

The three leaders are in agreement that it is important to strike a balance between developmental impact and financial sustainability. Many others who oppose commercialisation believe it is important for African DFIs to free the people from the clutches of poverty through targeted interventions before they can think about commercialisation.

For further clarity or enquiries on the recently ended WFDFI CEO's FORUM kindly contact:

Mr. Leatile G. Bakwena

Communications Manager

Tel:+267 3170895

Cell: +267 72323286

Email: lbakwena@ceda.co.bw